A client recently asked me when I think we might return to a “sellers’ market” — the type of market where demand for homes outpaces supply. The last time we saw one in full swing was in 2021, which many consider the strongest sellers’ market in history.
The question is a good one, because the housing market is being tugged in two directions at once. On one hand, high interest rates and affordability challenges have cooled buyer enthusiasm. On the other, there are powerful demographic and economic forces that could tip us back toward sellers.
Let’s take a closer look at the factors that matter most.
Interest Rates Still Rule the Market
Nothing moves the housing market faster than interest rates. When rates drop, buyers come off the sidelines almost instantly. Recent declines have already pushed purchase activity up more than 20% compared to last year.
Historically, during recessions, rates drop enough to offset employment losses and actually support housing prices. That’s why prices have held steady — or even increased — through most recessions, with the notable exception of 2008.
Affordability and the “Crash Bros”
Online pundits love to shout about an affordability crisis and an impending crash. But lower rates directly ease affordability pressures, giving more buyers access to homes they couldn’t afford at higher rates.
Affordability remains a challenge, no doubt. But with each dip in rates, a wave of buyers re-enters the market, reminding us that demand is very sensitive to financing conditions.
Housing Supply Is Still Behind
Despite fears of overbuilding in certain Sun Belt areas, the bigger picture tells a different story. In the 1970s, builders delivered as many as 2.5 million homes per year — with a U.S. population of just over 210 million.
Today, with nearly 350 million people, we’re averaging closer to 1 million new homes annually. That’s far below what’s needed to keep pace with population growth, household formation, and demand from younger buyers.
Demographics and the Millennial Wave
The prime homebuying age is now 30 to 39. Back in 2008, about 41 million Americans were in this age group. Today, that number is closer to 46 million. This shift adds millions of potential buyers into the market, creating an underlying base of demand that can’t be ignored.
Immigration, Employment, and Recessions
Immigration surged in recent years but has slowed dramatically. While most immigrants weren’t buying homes, they were renting, which tightened overall housing supply. The slowdown in immigration may ease some of that pressure.
At the same time, recessions and job losses always pose risks to housing demand. But historically, the positive impact of lower rates has outweighed the negative effect of employment downturns.
Inflation and Housing as a Hedge
Inflation — and the government’s reliance on money printing to manage debt — is another force that keeps housing prices from falling dramatically. Real estate has long been an effective inflation hedge, especially for younger buyers looking to protect their long-term financial future.
Why We Won’t See a Wave of Foreclosures
Unlike the 2008 crisis, today’s lending standards are much stricter. While FHA loans add some risk, we’re not dealing with the no-income, no-down-payment, poor-credit loans that swamped the market 15 years ago. A foreclosure crisis on that scale simply isn’t on the horizon.
The Overlooked Factor: Pent-Up Demand
Here’s the wild card — and the reason I don’t see a crash coming.
Millions of homeowners are “locked in” with mortgage rates under 4%. That’s kept them from moving, creating a freeze in available inventory. But life changes, families grow, jobs relocate, and eventually, people outgrow their homes.
We’re now starting to see many of these owners re-enter the market, willing to give up their 3.25% mortgages in exchange for more space or better locations. Even a modest dip in rates can spark movement.
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The family of four living in a 3-bedroom house that feels too tight.
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The parent called back to the office after years of remote work, now facing a 90-minute commute.
Both are scenarios where homeowners will move, no matter how low their existing rate is.
This pent-up demand may be the single most important factor driving the next sellers’ market.
The Bottom Line
I don’t see a crash ahead. Some markets may still correct, but the combination of lower rates, strong demographics, and pent-up demand points toward a rebound.
A half-point to one-point drop in mortgage rates could be enough to bring buyers back in force and tip the balance back toward sellers.
The real question isn’t if the sellers’ market will return — it’s when.
